United States v. Topco Associates, Inc.
| Decision Date | 16 November 1970 |
| Docket Number | No. 68 C 76.,68 C 76. |
| Citation | 319 F. Supp. 1031 |
| Parties | UNITED STATES of America, Plaintiff, v. TOPCO ASSOCIATES, INC., Defendant. |
| Court | U.S. District Court — Northern District of Illinois |
John E. Sarbaugh, Dept. of Justice, Chicago, Ill., for plaintiff.
Bell, Boyd, Lloyd, Haddad & Burns, Chicago, Ill., for defendant.
The Court having heard the evidence, the arguments of counsel, and having reviewed the various briefs and other documents submitted by the parties, enters the following Findings of Fact, Conclusions of Law and Opinion.
Topco Associates, Inc.
1. Topco Associates, Inc. (hereinafter "Topco") is a cooperative corporation organized under the laws of the State of Wisconsin and maintains its principal place of business in Skokie, Illinois. Topco is the successor to Food Cooperative, Inc., a cooperative association organized under the laws of the State of Wisconsin in 1944.
2. Topco is wholly owned and controlled by twenty-five independent firms engaged in the sale of grocery and related non-food products. Most of these firms (hereinafter "member chains" or "members") operate regional chains. Between them they have stores located in 33 states. These member chains, apart from their affiliation with Topco, are wholly independent, separate supermarket chains, each operating under separate and independent management.
3. Of the twenty-five Topco members, twenty-three are small or medium sized supermarket operators; two are retailer-owned cooperative wholesalers. The members do not conduct business under the "Topco" name or mast. Each succeeds or fails as a separate entity. There is no pooling of earnings or profits, capital, management, or advertising and promotional resources. Each member operates independently, purchases from whom it pleases, selects the number or types of products it chooses, follows its own merchandising philosophy, prices merchandise as it wishes, adopts its own advertising and promotional strategies, and exercises independent discretion as to the location and number of stores it will operate.
4. Topco functions as a cooperative buying organization and procures and distributes more than 1000 different food and related non-food items exclusively to its member chains, most of which are distributed under brand names owned by Topco. The brand names used for these food and related non-food products include:
Baby Soft Food Club Mel-O-Sweet
Beacon Gayla Noel
Bo Peep Gaylord Pounce
Country Cheese Hampshire Secure
Dartmouth Honor Roll Springcrest
d'azur Kings Kennel Time
Dining In Kol Topco
Dog Club Lance Top Frost
Elna Mello-Sip Top Spred
Top Fresh Valiant
5. In addition to those products bearing trademarks or trade names owned by Topco, Topco also procures for its members food and related non-food items, supplies and equipment which are unbranded or which bear trademarks and trade names not owned by Topco. It does not, however, normally purchase nationally advertised brands for its members who purchase such brands through other channels.
6. Topco employs about 200 persons who are located at Topco's offices and in field procurement facilities. Topco's procurement operations are complex and extensive, involving the development of quality specifications and standards, product testing, innovation and quality control, label design and modernization, arrangements for label production and packaging, location of and negotiation with sources of supply, and product distribution.
7. While there are exceptions, most member chains are "full" members, and purchase from Topco most of the products offered by Topco under the numerous Topco brands.
8. Topco's predecessor, Food Cooperative, Inc., was founded by a group of small, local grocery chains, independently owned and operated, which had need for cooperatively obtaining merchandise under private label so that they could offer their customers better value in competition with the national and large regional chains which had sufficient economic power to finance their own private label programs. The principal purpose of Topco, like that of its predecessor, is to provide its members with an effective and cost competitive private label program essential for genuine competition with the national and large regional chains.
9. In 1964, Topco's member chains had combined retail sales of more than $2 billion. In 1967, the members' combined retail sales exceeded $2.3 billion; only A & P, Safeway and Kroger had greater retail sales.
10. During Topco's fiscal year ending March 31, 1968, Topco procured for and sold to its member chains food and related non-food products, supplies and equipment valued at $236,871,000 or about 10 per cent of their total sales. Of this total sales figure, products bearing Topco brands accounted for $133,871,000, or about 6 per cent of their total sales, while sales of products which are unbranded or which bear brands owned by others totaled $102,546,000, or about 4 per cent of the members' total sales.
11. In 1967, Topco individual member supermarket sales volumes ranged from $1.6 million to $182.8 million, and 18 of its then 26 members were well under $100 million.
12. Topco members' food sales in 1966 represented the following percentages of total retail food sales in their respective marketing areas:
Market Share
Topco Member Percentages
Allied Supermarkets, Inc. 8.6
American Community Stores Corp. 9.5
Big Bear Stores Company 8.0
A.J. Bayless Markets, Inc. 15.3
Brockton Public Markets 1.5
A. W. Cullum & Co., Inc. 8.9
Delchamps, Inc. 7.5
Eagle Food Centers, Inc. 4.7
Furr's, Inc. 9.1
Giant-Eagle Markets, Inc. 5.5
Giant Food, Inc. 8.6
Hill's Korvette Supermarkets, Inc. 2.8
Holyoke Food Marts, Inc. 3.6
The Liberal Market, Inc. 8.2
McCarty-Holman Co., Inc. 14.6
Meijer's Supermarkets, Inc. 7.7
Fred Meyer, Inc. 4.6
Milgram Food Stores, Inc. 9.5
Supreme Markets, Inc. 1.4
Penn Fruit Company 3.8
Pick-N-Pay Supermarkets 16.3
Schultz-Sav-O-Stores, Inc. 4.4
Star Markets (Cambridge) 5.5
Star Supermarkets, Inc. (Rochester) 14.1
J. Weingarten, Inc. 9.1
Average Market Share Percentage 5.87
13. Topco members are scattered across the country and located essentially in different geographic markets of the country. Each member operates in competition with one or more of the national and large regional chains, as well as with numerous smaller chains and independents.
14. Topco does not own any manufacturing, processing or warehousing facilities. Items procured through Topco are in most cases shipped directly from the packer or manufacturer to the member. Payment is made, depending upon the circumstances, either to Topco or directly to the packer or manufacturer. Members pay for merchandise procured at "average cost" upon the same terms and discounts received from suppliers. The operating expenses of Topco are covered by annual service charges paid by the members and based on their gross sales.
15. The 25 Topco member firms own all classes of the Association's stock. The common stock, the only class of stock having voting rights, is equally divided among the member firms. Each member firm is required to purchase both common and preferred stock as a condition of membership. Members are required to purchase preferred stock in an amount determined on the basis of the member's total retail sales. All of Topco's preferred stock is owned by the 25 member firms.
16. The Topco by-laws control the disposition, by the members, of both common and preferred stock at the time a member terminates its affiliation with the Association. These provisions prevent Topco stock from falling into the hands of non-members.
17. The business of Topco is managed by a board of 14 directors. Each member of the Topco board of directors is normally also a principal executive officer of his respective supermarket chain. Between January 1, 1960 and January 1, 1968, 28 persons served as directors of Topco. Each of these individuals also served as a principal executive officer of a member chain.
18. The Topco board of directors elects the Association's officers and appoints committee members. The principal executive officers of the Association are the Chairman of the Board, the president, an executive vice president, a vice president and a secretary-treasurer. All principal officers must be directors except that the executive vice president may be an alternate director.
19. The food retailing industry is characterized by the dominance of the large national food chains which generally set the competitive pace. In 1967, sales of the 25 largest supermarket chains represented 85.6 per cent of total supermarket chain sales.
20. The large multi-unit retail food chains have been able to achieve significant economies and competitive advantages over smaller operators both in purchasing and distribution.
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